2018 (5) TMI 233 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D - Held that - Regarding the disallowance made by the AO under Rule 8D(2)(i), it is found from the profit and loss account for the year ended 31.03.2012 of the assessee that the same relates to D-Mat charges. As this amount of expenditure is directly related to dividend income earned by the assessee, the same is confirmed. Disallowance made by the AO under Rule 8D(2)(ii) it is found that the partner s capital account in the current year stands at ₹ 32,136,138/- whereas the investments were of ₹ 7,583,012/-. As the own fund in the instant case is more than the investments, we delete the disallowance made by the AO under Rule 8D(2)(ii). See HDFC Bank Ltd. vs. DCIT 2016 (3) TMI 755 - BOMBAY HIGH COURT

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act
2. Ad-hoc addition of cash expenses

Issue 1: Disallowance under section 14A of the Income Tax Act:
The appellant contested the disallowance under section 14A, arguing that investments were made from own capital, not borrowed funds, and no expenditure was incurred on the dividend received during the year. The Assessing Officer (AO) made a disallowance of &8377; 28,78,154/- under Rule 8D, which was confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. However, the Tribunal found that the own fund in this case exceeded the investments, citing relevant case law. Referring to the decision in HDFC Bank Ltd. vs. DCIT, the Tribunal deleted the disallowance of &8377; 28,38,430/-. The disallowance of &8377; 1,987/- under Rule 8D(2)(i) was confirmed, but the disallowance of &8377; 37,737/- under Rule 8D(2)(iii) was also upheld.

Issue 2: Ad-hoc addition of cash expenses:
The AO disallowed &8377; 3,00,000/- on an ad-hoc basis for expenses totaling &8377; 29,87,004/-, citing personal elements and lack of verifiable documentation. The CIT(A) upheld this addition, following a previous order. The appellant argued that all expenses were for business purposes and provided ledger details and supporting vouchers. The Tribunal noted that the AO's decision was based on presumptions and ad-hoc in nature. As the ledger accounts were submitted and no concrete evidence of personal expenses was found, the Tribunal deleted the ad-hoc disallowance of &8377; 3,00,000/-.

In conclusion, the appeal was partly allowed, with the Tribunal making specific rulings on the disallowances under section 14A and the ad-hoc addition of cash expenses. The judgment was pronounced on 18/04/2018 by the Appellate Tribunal ITAT Mumbai, with detailed analysis and references to relevant legal provisions and case law.